As Delphi lenders demand access to information in anticipation of a potential bid, the company has asked a bankruptcy court for authorisation to pay Platinum Equity $30 million in the event the firm’s $3.6 billion bid to buy the company is trumped.
Platinum entered into an agreement with Delphi earlier this month to buy almost all the company’s assets out of bankruptcy and continue running the company as a going concern.
The arrangement has met with several objections from Delphi’s debtor-in-possession lenders, who argue the deal was struck in secret and Delphi was blocking other bidders from getting financial information. The DIP lenders had been pushing Delphi to liquidate rather than reorganise under bankruptcy protection, a plan that would result in “value destruction”, Sheehan said.
A hearing on the deal is scheduled for late July.
Platinum expended resources and time working on due diligence on various proposals for the acquisition of Delphi, Sheehan said. “I believe it is reasonable to obligate a winning bidder to reimburse Platinum’s expenses,” Sheehan said. “Platinum provided the path to a full and final global resolution to Delphi’s bankruptcy cases.”
Delphi defended its sale to Platinum in a bankruptcy filing Thursday and said the deal is the product of “many months of extensive discussions among Delphi and its stakeholders, including its DIP lenders, GM, the Automotive Task Force of the US Treasury, the creditors’ committee, and potential third-party investors, including Platinum and other investors who have expressed an interest in Delphi”, John Sheehan, Delphi’s chief financial officer, said in the filing.
Delphi rejected Platinum’s advances several times before finally accepting the firm’s offer in early June. The firm had entered into an agreement to acquire Delphi’s global steering unit for $190 million in 2006, but the companies cancelled the agreement in March after failing to come to financial terms amid setbacks in the automotive industry.
Platinum also expressed interest in investing in Delphi while working on the investment in the global steering division, Sheehan said. In 2007, Delphi told Platinum the company had no interest in a larger investment from the firm. At the time, Delphi already had $2.55 billion in financing lined up from a group of investors led by Appaloosa Management.
The Appaloosa investment fell through in 2008 and Platinum again approach Delphi with an interest in investing in the company. From September 2008 through January 2009, Platinum engaged in “substantive and intensive” due diligence with Delphi in an attempt to “lead a comprehensive Delphi emergence transaction”.
“Platinum committed substantial internal resources and engaged multiple financial and operational diligence firms to support its efforts, including multiple teams that met with Delphi in every region of the world,” Sheehan said.
Later in January 2009, Delphi again rejected Platinum’s proposal because of the company’s negotiations with GM and a group of lenders who were providing bankruptcy financing to the company.
Eventually, disagreements between Delphi and the lenders led the company to forward Platinum’s proposal to the US government’s auto task force.
At all times, Delphi made the lenders aware that Platinum and another bidder were performing due diligence on proposals for the company, Sheehan said.